Pay me now (and later): Pension benefit manipulation before plan freezes and executive retirement

  • Irina Stefanescu Irina Stefanescu
  • Jun Yang Jun Yang
  • Kangzhen Xie Kangzhen Xie
  • Yupeng Wang Yupeng Wang

Large U.S. companies modify the inputs of benefit formulas of top executives’ defined benefit pension plans before plan-related events. We find an average boost of 17–33% in annual bonuses (a determinant of benefits) but no increases in equity awards (not a determinant of benefits) one year before pension freezes. Our results are stronger under propensity score matching. Moreover, firms lower plan discount rates by 13–35 basis points when top executives are ready to retire with a lump-sum benefit distribution. Interestingly, we find no pension-related bonus boosts or discount rate manipulation at firms with strong corporate governance.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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